ARB holds that SOX covers subsidiaries

The U.S. Department of Labor’s Administrative Review Board (ARB) (shown in a file photo) yesterday decided that the 2002 Sarbanes-Oxley Act (SOX) protects the employees of subsidiaries of publicly traded companies. The case is Carri Johnson v. Siemens Building Technologies, Inc., ARB Case No. 08-032 (ARB Mar. 31, 2011). This is the first case in which the Obama Era ARB requested amicus briefs. The prior administration had held that SOX would not protect employees of a subsidiary unless the employee could show that the subsidiary was acting as an agent of the publicly traded parent company. The National Whistleblowers Center (NWC) joined with the National Employment Lawyers Association (NELA) and the Government Accountability Project (GAP) to to submit an amicus brief as requested by the ARB. In the meantime, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 929A of Dodd-Frank amended SOX to make coverage of subsidiaries clear. NWC submitted a supplemental brief. The ARB’s majority opinion, however, would not give direct effect to the Senate Report’s declaration that Section 929A was a clarification rather than an amendment. (S. Rep. 111-176, p. 11, stated, "This clarification would eliminate a defense now raised in a substantial number of actions brought by whistleblowers under the statute.") Instead, the ARB finds that Section 929A is a reasonable interpretation of the 2002 SOX language, and consistent with its remedial purpose.

The ARB also held that the Administrative Law Judge had examined only one legal basis for finding agency liability. The ARB points out that there are, "alternative bases and factors upon which common law agency might be established." The ARB concludes at p. 17 that:

An employee of a subsidiary whose financial information is included in a publicly traded parent company’s consolidated financial statements is protected against retaliation where the employee engages in whistleblower protected activity under [SOX] Section 806.

The ARB’s Deputy Chief Administrative Appeals Judge E. Cooper Brown wrote a concurring opinion. This opinion expands on the types of agency liability that ALJs can use to find respondents liable. These include not only "actual agency" (where the principal gives the agent a reasonable basis to believe that the principal wants the agent to take the action), but also "apparent authority" (where a third party has a reasonable basis to believe that the agent can act on behalf of the principal) and "respondeat superior" (where the agent has acted with the scope of the principal’s authority).

The concurrence also makes explicit that the ARB’s analysis draws on "the context of the securities laws the whistleblower protection provision was designed to help enforce[.]" This is an important recognition as it adopts the well-developed body of securities law to help decide who is covered by American securities law and who is not. Based on his review of the statute and prior ARB decisions, Judge Brown concludes at p. 21 that

Section 806 extends its prohibition against whistleblower retaliation to any officer, employee, contractor, subcontractor or agent of a publicly traded company engaged, on behalf of the public company, in securities related activities, and protects employees of any entity engaged in such activities from whistleblower retaliation by such entity regardless of whether the retaliation is or is not rendered on behalf of the public company.

This ARB decision could support whistleblowers from other countries who work for subsidiaries of companies traded in American stock exchanges. After all, the main impetus for Congress to enact SOX was the way that Enron abused its off-shore subsidiaries. The SEC certainly regulates companies in their off-shore practices and our whistleblower laws should now follow the full scope of SEC jurisdiction.

Congratulations to Carri Johnson and her attorney, Jacqueline Williams of Minneapolis, Minnesota. Many people worked on the NWC-NELA-GAP amicus including Michael T. Anderson (of Boston) and Ann Lugbill (of Cincinnati) from the law firm of Murphy Anderson, R. Scott Oswald and Jason Zuckerman of The Employment Law Group in Washington, DC, Karen Gray of GAP, Rebecca M. Hamburg of NELA, and yours truly. Other helpful amicus briefs came from M. Patricia Smith, William C. Lesser and Jonathan T. Rees of the Solicitor of Labor’s office, Mark D. Cahn, Jacob H. Stillman, Mark Penninton and Allan A. Capute of the Securities and Exchange Commission (SEC), Lynn K. Rhinehart, James B. Coppess and Brandon J. Rees of the AFL-CIO, Thank you all.

I would like to take this opportunity to offer my deepest and most heartfelt appreciation to everyone involved for the incredible support given on behalf of my case. Your efforts and true hard work will never be forgotten.
God bless you all…